FAR - Note Receivables (Value, Presentation, Discounting the Note Receivable to get quick cash) Flashcards Preview

FAR CPA Review - (Becker, Roger, Wiley CPA Excel, NINJA) > FAR - Note Receivables (Value, Presentation, Discounting the Note Receivable to get quick cash) > Flashcards

Flashcards in FAR - Note Receivables (Value, Presentation, Discounting the Note Receivable to get quick cash) Deck (10):

What is a note receivable?

Note receivable 

= Customer pays money to Company over time.

= Cash payments that reduces Note receivable amount is the (principle-portion amount)


When is Note receivable a current asset? When is it a Non-current (long-term) asset?

Note receivable is current asset 

= Collect cash paymen twithin short time (like < 1 year)


Note receivable is non-current asset

= Collect cash payments within a long-time period (like over 1 year)



Note receivable to be presented at its Present Value, needs to deduct what two things?

Deduct (1) Unearned interest  and any (2) Finance charges


Note receivable Face value
- Unearned Interest
- Finance charges
= Present value


How to calculate the value of 


(a) Non-interest bearing note


(b) Interest rate below market rate (note's stated rate is below market rate)


(c) interset bearing note

(a) Non-interest bearing note: use the Imputing the market rate.

(b) Itnerest rate (on note) below market rate = use the effective interest rate

(c) Interset bearing note (arms length transactions / regular transaction):  use the Market rate.



What is Discounting a note receivable?

Discounting a note receivable = getting quick cash a note receivable by discounting it at a bank. The bank pays the company at a lower $$ amount.



Discounting Note receivable:


When cashing in the Note receivable, the bank uses what to determine the value of the cash payment to pay to the company (note-receivable holder)?

The bank uses the "Discount rate" to be aplied on the Note receivable's Maturity value (face amount + interest) to get a new $$ amount in paying it to the company (note receivable holder). 


Discounting note receivable

Note mature value - ______ = the discount amount

Note receivable maturity value
- Cash payment
= Discount amount


Discounting Note receivable with Recourse:


What is this?

(1) Company (note receivable holder) still liable to collect money to completely remove the Note receivable off its books.

(2) Company's balance sheet uses Note receivables Discoutned contra account to reflect Note receivable is discoutned to 3rd party (the bank) and reflect the new value of the Note receivable, 


Balance Sheet


Note Receivable                        $2,000
(Note receivable Discount)            (300)
= Net note receivable                  $1,700

(3) Or:  Wipe out the entire Note receivable (remove it / no present it) on Balance Sheet

and  Disclouse in the Footnotes the contingent liability to collect whatever is left over in the Balanc Sheet.


Discounting Note Receivable without recourse:


What is this?

(1) Company (note receivable holder) no longer liable any longer to collect any cash payment on the note receivable after discounting to third party (i.e. the bank).

(2) After discounting to third party (the bank), the entire Note receivable is removed from balance sheet.


What is dishonored discounted notes receivable?

(1) This is removing a note receivable discoutned amount.

(2) This is done via removing the contingent liablity via:

Journal Entry:

Debit    Note Receivable Discounted  
     Credit:    Note Receivable

Notes Receivable Discounted is recorded at Estimated Recoverable amount on the note.

(3) Recording loss:

Debit    Note Receivable Discounted
Debit    Loss
         Credit   Note Receivable

Recognize loss when Estimated Recoverable amount < [Cash payment to settle note + any penalties].

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